GBP/CAD Rate Hobbled by 'Strong' Canadian Labour Data
- Written by: James Skinner
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Image © Adobe Stock
The Pound to Canadian Dollar exchange rate was hobbled ahead of the weekend after Statistics Canada announced further strong gains in the number of jobs created by the local economy in April but the appearance of strength might be misleading.
Canada's economy created 41,000 new jobs as employment rose by 0.2% in overall terms during April while the unemployment rate held at 5% for a fourth month running in what was a double-barreled surprise of an economist consensus that looked for a 21.6k increase in jobs to be accompanied by a higher unemployment rate of 5.1%.
But while the data is positive in headline or overall terms, the steady unemployment rate masks cracks beginning to appear underneath the surface because full-time employment appears to have fallen and the number of persons unemployed for 13 weeks or less was revealed to have risen by around 100k thus far in the year.
"The quality wasn't quite as good as in prior months with all of the gain coming in part-time work (+48K)," says Andrew Grantham, an economist at CIBC Capital Markets.
"Overall, even though today's increase in employment was fairly narrowly based and driven by part-time work, the labour market is clearly stronger and tighter than we would have expected given signs of deceleration in economic growth to end Q1, which supports the continued hawkish tone from the Bank of Canada," Grantham adds.
The cracks appearing are signs of success on the part of the Bank of Canada (BoC), which has raised its cash rate from 0.25% to 4.5% in an effort to keep elevated wage growth from adding to high levels of inflation, which has receded in recent months but at a cost to the economy.
Average hourly wages rose by 5.2% or $1.66 to $33.38 in April, down from 5.2% in March but up slightly from 4.9% in January this year.
"Inflation fell from its peak of 8.1% last year to 4.3% in March. We expect it will decline to around 3% this summer. This is good news and shows that interest rate increases are working to rebalance the economy. But the work of monetary policy is not done," Governor Tiff Macklem told the Toronto Region Board of Trade on Thursday.
"Getting all the way there will take time and involves risks, notably that services price inflation could stay higher for longer than we expect. For services price growth to slow enough for inflation to get back to target, three things need to happen," he added.
Governor Macklem flagged moderation of the labour market and wages as necessary for businesses to slow the size and pace of their price increases while also indentifying inflation expectations as an important influence on how soon inflation returns to the 2% target.
The BoC's strategy has been used in many other countries around the world including in the United Kingdom where the Bank of England (BoE) is widely expected to announce another increase in Bank Rate next Thursday even with the economy at a crawl speed..
Above: Pound to Canadian Dollar rate shown at daily intervals alongside USD/CAD.